Unemployment figures have been downright scary since the US. shut down to slow the spread of coronavirus in late March, although numbers have been improving slowly as states have reopened their economies. Unfortunately, many businesses will never recover, and those who do may need to continue with a leaner, more efficient workforce. Even worse, extended unemployment benefits will not last forever, so many of the nation’s unemployed could soon be left high and dry.
This means that, like it or not, a wave of financial destruction is likely headed our way later this year, although it may wash over us in several bursts. According to The New York Times
Some states are already planning for this likelihood. In the state of New York, for example, the court system has paused evictions until at least August 20th. In Washington State, evictions are currently paused until August 1st. At one point, 25 states had moratoriums in place for Covid-related evictions, although some of them have expired.
Also note that Freddie Mac and Fannie Mae extended the moratorium on foreclosures and evictions on single-family homes until August 31, 2020. This pause was originally planned through the end of June.
Further, additional protections for renters were also included in the CARES Act, including a pause on evictions through July 24, 2020. However, these protections only apply to federally subsidized or federally backed housing.
BROOKLYN, NEW YORK, UNITED STATES - 2020/07/05: Participants hold a #CancelRent banner at the ... [+]
The Problem With Freezing Evictions
Putting a temporary halt on all evictions sounds good in theory. After all, those who are unable to pay their rent due to coronavirus should not be thrown out in the street at a time when states are pausing their reopening plans because coronavirus cases continue to surge. Pausing evictions does not get the rent paid, but it does ensure that Americans impacted by coronavirus are not suddenly homeless.
And note: the rent is still going to be due. It simply becomes a question of when it’s going to be due, and if it can be paid. None of the current measures forgive rent.
The problem with pausing evictions is that not all landlords are giant corporations with deep pockets. According to data from the U.S. Census Bureau, around 22.7 million units in 16.7 million properties were owned by individual investors nationwide at last count, compared to 25.8 million units owned by businesses. Unlike businesses that are more likely to own giant apartment complexes and multi-family units, individual investors are more likely to own single family homes or duplexes. Many may only own one or two units as a strategy to help cover some of their living expenses during their working years or in retirement.
If you’re familiar with the FIRE (financial independence, retire early) movement at all, you also know that many investors reach financial independence using rental income, often by leveraging the growing equity in their current homes to buy more. Many FIRE enthusiasts I know of personally own anywhere from 10 to 80 or more units that they maintain as their full-time job. They may hire a property manager to keep track of repairs and collect the rent, but they do rely on rental income to cover their own living expenses.
Further, many real estate landlords do have mortgages on properties they have chosen to invest in and operate. And in many cases, the rent payments barely cover the mortgage at all, let alone leave enough leftover to cover missed rent payments for months on end.
When rent is not being paid, it’s simply hurting others. The government is basically asking mom and pop landlords across the country to subsidize their tenants. Unlike government stimulus checks - this is stimulus coming directly from the pockets of the homeowner.
How An Eviction Freeze Creates Hardship For Small Landlords
I know it’s not always easy to have empathy for someone who may own multiple homes, but keep in mind that many investors make sacrifices to get into the real estate market in the first place. Buying a rental property typically requires a 20 percent down payment in today’s market, so small time investors frequently save for years to come up with the money. Small time landlords are also on the hook for repairs and upgrades to their properties, and we all know that renters will occasionally cause a lot more damage than their rental deposit can cover.
Either way, imagine for a moment you’re a small town landlord who saved up the down payment to buy two single-family properties in your hometown. Your plan is to cover each mortgage and pay for repairs using the monthly rent payments, and you were smart enough to base the numbers on missing a rent payment at least once each year.
All of a sudden, you find yourself missing rent payments in March and April as the pandemic begins coursing through the United States. Your state then places a moratorium on evictions that will last through the summer, which means you continue without any rent payments throughout May, June, July, and August. At that point, you haven’t received the rent payments on two separate homes for six months. If the mortgages on those properties were for $1,000 each, this means you are currently out $12,000, and you still have to spend money and time evicting your renters once the moratorium finally ends.
Many “mom and pop” landlords just don’t have that kind of money laying around, and that’s especially true if they have also faced setbacks or a loss in their own income due to Covid-19. An eviction freeze may help renters keep a roof over their heads, but the end result could easily leave landlords financially ruined or out on the streets themselves.
While it’s easy to gloss over this fact or assume that all landlords are financially well off, the statistics and stories many landlords share show that this is not the case. The reality is, many landlords use the rent payments to cover the mortgage and pay for rising property taxes and insurance while banking on appreciation of their properties later on.
An Alternative To The Eviction Freeze
This is why the government should step in to help renters and landlords navigate the crisis caused by coronavirus. One alternative is asking federal or state governments to step in with a voucher program that lets renters avoid eviction without asking individual landlords to subsidize their housing. Just like the government is subsidizing individuals with stimulus checks, and businesses with PPP, it’s not unheard of for the government to help cover the rent of people who’ve lost their income.
This is what leaders of the Florida Apartment Association have been advocating for in their home state, according to the Tampa Bay Times. Governor Ron DeSantis originally extended the state’s ban on evictions until July 1st, but the moratorium is now in place for residential properties through August 1st.
Instead of relying on individual landlords to shoulder the burden of unpaid rent, the association has called for more new programs similar to the One Tampa relief fund, which is geared to out-of-work renters.
“One thing we’ve been saying the entire time is that while these moratoriums are well-intended they’re not the cure for the crisis,” Amanda Gill, the association’s government affairs director, told the Tampa Bay Times. “They don’t address the underlying symptoms that Florida residents don’t have the financial resources to pay for their basic needs.”
In the meantime, mortgage forbearance programs geared specifically to landlords would also help. What doesn’t help is assuming all landlords can afford to subsidize housing for renters who are suffering from the economic effects of Covid-19. Landlords have bills to pay too, and many have their own Covid-related financial problems to deal with already.
